Minority shareholders of Synthes alleged that Hansjoerg Wyss, the company’s controlling shareholder, breached fiduciary duties owed to them in rejecting a merger offer that would have seen the minority cashed out but required Wyss to remain as an investor, based on the application of the ‘entire fairness’ standard: in re Synthes Inc Shareholder Litigation, 2012 Del Ch LEXIS 196. Wyss had instead negotiated a deal with Johnson & Johnson (J&J) consisting of the 65% stock and 34% cash.
The Delaware Court of Chancery determined that there was no conflict between Wyss’s interests and those of the minority: he had more incentive than anyone to maximise the sale price of the company and was not under any duty to penalise himself in order to make a better deal for the others. As long as the minority were afforded pro rata treatment, the decision to go with the J&J offer could be justified under the business judgment rule. The court also rejected the contention that the transaction was subject to a Revlon duty to obtain ‘the highest immediate value reasonably obtainable’ (Revlon v MacAndrews & Forbes Holdings Inc, 506 A2d 173 (Del 1986)), which would be applicable only if there was a change in control of the company – not (as here), where control will remain in ‘a large, fluid market’. Even if Revlon duties did apply, there was no evidence that Wyss and the board of Synthes had failed to ensure that shareholders would receive the highest value reasonably attainable. The court also rejected the argument that measures taken to protect the J&J deal were unreasonable and preclusive of a better third-party bid.